Capital Market and Securities Laws · Securities Contracts (Regulation) Act, 1956

SCRA 1956 Overview and Key Definitions

Updated 11 October 2026 · Fact-checked

The Securities Contracts (Regulation) Act, 1956 regulates contracts for buying and selling securities and the stock exchanges where they are traded. It extends to the whole of India. Section 2 defines key terms. To answer, state the definition, break it into parts, apply it to the facts, and conclude.

Understand SCRA 1956 Overview and Key Definitions

The Securities Contracts (Regulation) Act, 1956 (SCRA) is the main law for dealing in securities. It controls stock exchanges and contracts in securities, so that trading is orderly and fair. Think of it as the rulebook for the market place, while the SEBI Act, 1992 deals with the regulator.

Start with the basics in Section 1. The Act may be called the Securities Contracts (Regulation) Act, 1956. It extends to the whole of India. It came into force on a date the Central Government appointed by notification. That date was 20 February 1957.

The real exam weight sits in Section 2, the definitions. A contract here means a contract for or relating to the purchase or sale of securities. A stock exchange is a body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation under sections 4A and 4B, or a body corporate incorporated under the Companies Act, 1956, in either case for assisting, regulating or controlling the business of buying, selling or dealing in securities. A recognised stock exchange is one recognised by the Central Government under section 4.

Securities is an inclusive definition. It covers shares, scrips, stocks, bonds, debentures, debenture stock and other marketable securities of a like nature in or of any incorporated company, pooled investment vehicle or other body corporate. It also covers derivatives, units of collective investment schemes, security receipts, mutual fund units, units of pooled investment vehicles, certain certificates issued by special purpose distinct entities, Government securities, and rights or interests in securities. A unit linked insurance policy is expressly not a security.

A spot delivery contract needs actual delivery of securities and payment either on the same day as the contract or the next day. Where securities sit with a depository, it covers transfer from one beneficial owner's account to another's. Section 18 says sections 13, 14, 15 and 17 do not apply to spot delivery contracts. The Central Government can still apply section 17 to them by notification if it is expedient in the interest of trade or in the public interest.

Key rules to remember

Extent (Section 1): Extends to the whole of India; Commencement was by notification of the Central Government; the Act came into force on 20 February 1957.
Securities (Section 2(h)): Securities = shares, scrips, stocks, bonds, debentures, debenture stock and like marketable securities + derivative + CIS units + security receipts + mutual fund units + pooled investment vehicle units + SPDE certificates + Government securities + rights or interests in securities; The definition says 'include', so it is inclusive. Unit linked insurance policies are excluded.
Spot delivery contract (Section 2(i)): Actual delivery and payment on the same day or the next day; or depository transfer between beneficial owners' accounts; Postal transit time is excluded from the period if the parties are not in the same town or locality.
Option in securities (Section 2(d)): Contract for purchase or sale of a right to buy or sell, or buy and sell, securities in future; Includes teji, mandi, teji mandi, galli, put, call, put and call.
Derivative (Section 2(ac)): Includes a security derived from a debt instrument, share, loan, risk instrument or contract for differences; a contract deriving value from prices or index of prices of underlying securities; commodity derivatives; other instruments declared by the Central Government; The definition is inclusive.
Exclusion of spot delivery (Section 18): Sections 13, 14, 15 and 17 do not apply to spot delivery contracts; The Central Government may apply section 17 to them by notification, in trade or public interest.
Ready delivery contract (Section 2(ea)): Delivery of goods and payment immediately or within a period not exceeding eleven days, not extendable by mutual consent; It is not a ready delivery contract if performed by paying differences or if actual tender or full payment is dispensed with.

How to solve SCRA 1956 Overview and Key Definitions questions

Use this method for any question on the Act's scope or definitions.

1Identify what is asked: extent, commencement, or a particular definition in section 2.
2State the provision first, using the section number you are sure of (section 1, section 2(h), section 2(i), section 18).
3Break the definition into its parts, such as items listed or conditions of time and delivery.
4Apply each part to the facts given. For securities, check whether the instrument fits a listed category or the exclusion for unit linked insurance policies.
5Note any exclusion or exception, for example section 18 for spot delivery contracts.
6Write a clear conclusion in one line that answers the question asked.

Quickest way: Definition checklist

When to use it: For short-answer or 'define' questions where you have only a few minutes.

Write the term and cite section 2 with its clause.
List the main limbs in bullet points.
Add the one key exclusion or condition, such as the same-day or next-day rule.
Close with a one-line conclusion or example.

Common mistakes in SCRA 1956 Overview and Key Definitions

Treating the definition of securities as a closed list.
Students memorise the list and forget the word 'include'.
Fix: Say the definition is inclusive, then give the main categories.
Saying a spot delivery contract needs delivery on the same day only.
Students recall only 'spot' and ignore the next-day limb.
Fix: Write 'same day or the next day' and mention the depository transfer limb.
Including unit linked insurance policies as securities.
They look like investments.
Fix: Remember the Explanation to section 2(h): such policies are excluded.
Confusing a stock exchange with a recognised stock exchange.
The terms look alike.
Fix: A recognised stock exchange is one recognised by the Central Government under section 4.
Saying section 18 completely exempts spot delivery contracts from the Act.
Students stop reading after sub-section (1).
Fix: It excludes only sections 13, 14, 15 and 17, and the Central Government may apply section 17 by notification under sub-section (2).
Stating the Act applies only to some States.
Students mix this with the power in section 18(2) to apply provisions to a State or area.
Fix: Section 1 says the Act extends to the whole of India.

Worked examples

Example 1

Examine whether a contract under which Rohit in Mumbai agrees to buy shares from Meera and take delivery and make payment three days later is a spot delivery contract under the SCRA, 1956.

Show the solution

Provision: under section 2(i), a spot delivery contract provides for actual delivery of securities and payment either on the same day as the contract or on the next day.
Facts: delivery and payment are agreed three days after the contract.
Analysis: three days is beyond the same day or the next day. Postal time is excluded only where the parties do not reside in the same town or locality, and both here are in Mumbai.
Consequence: it is not a spot delivery contract, so the exclusion in section 18(1) does not apply to it.

Answer: The contract is not a spot delivery contract because delivery and payment are not on the same day or the next day. Section 18(1) therefore does not exclude it from sections 13, 14, 15 and 17.

Example 2

Explain the extent and commencement of the SCRA, 1956 and state what the Act means by 'securities'.

Show the solution

Section 1: the Act may be called the Securities Contracts (Regulation) Act, 1956 and extends to the whole of India.
Commencement: it came into force on the date the Central Government appointed by notification, which was 20 February 1957.
Section 2(h) says securities include shares, scrips, stocks, bonds, debentures, debenture stock and like marketable securities of an incorporated company, pooled investment vehicle or other body corporate.
It also includes derivatives, CIS units, security receipts, mutual fund units, pooled investment vehicle units, certain SPDE certificates, Government securities and rights or interests in securities.
Exclusion: unit linked insurance policies are not securities.

Answer: The Act extends to the whole of India and was brought into force on 20 February 1957 by notification. Securities, under section 2(h), is an inclusive term covering the listed instruments, but excludes unit linked insurance policies.

Exam tips

Learn section 2(h), 2(i) and section 18 almost word for word, because short-note questions target them.
Write the clause number next to each definition, such as 2(h) for securities and 2(i) for spot delivery contract.
For applied questions, quote the time limit or category in the definition and then match it to the facts.
Do not skip the exclusions, such as unit linked insurance policies and the scope of section 18.
Use bullet points for the list in the securities definition so the examiner can see each limb quickly.

Practice questions from Securities Contracts (Regulation) Act, 1956

SCRA 1956 Overview and Key Definitions: frequently asked questions

What is the extent of the SCRA, 1956?

Section 1 says the Act extends to the whole of India. It came into force on a date appointed by the Central Government by notification, which was 20 February 1957.

What does 'securities' include under SCRA?

Section 2(h) includes shares, scrips, stocks, bonds, debentures and similar marketable securities, derivatives, CIS and mutual fund units, security receipts, Government securities and rights or interests in securities. The definition is inclusive. Unit linked insurance policies are excluded.

What is a spot delivery contract under SCRA?

Under section 2(i), it is a contract for actual delivery of securities and payment on the same day or the next day. It also covers depository transfer between beneficial owners' accounts. Postal time is excluded where the parties are in different towns.

Does the SCRA apply to spot delivery contracts?

Section 18(1) says sections 13, 14, 15 and 17 do not apply to them. Under section 18(2) the Central Government may by notification apply section 17 to spot delivery contracts in a State or area in the interest of trade or the public interest.